Supply-Side Amnesia

Project Syndicate: Supply-Side Amnesia: While in the White House, Feldstein waged a persuasive but lonely bureaucratic campaign against the Reagan administration’s 1981 income-tax cuts, arguing that they had been too big, and would prove economically painful if not corrected…. If Feldstein’s warning had been heeded in 1982-84, America would be stronger and happier today. I was thus dismayed at his recent expression of optimism that under today’s Republican-led Congress, “a tax reform serving to increase capital formation and growth will be enacted,” while arguing that “any resulting increase in the budget deficit will be only temporary”… Read MOAR at Project Syndicate

Information Technology and the Future of Society (Hoisted from 2001)

Hoisted from 2001: Information Technology and the Future of Society (My Bekeley CITRIS Kickoff Talk) For perhaps 9000 years after the beginnings of agriculture the overwhelming proportion of human work lives were spent making things: growing crops, shearing sheep, spinning yarn, weaving cloth, throwing pots, cutting down trees, copying books, and so on, and so forth.

Technology did improve enormously over those 9000 years: contrast the clothes-making technology at the disposal of Henry VIII of England with that of Rameses II of Egypt three thousand years before; contrast the triple-crop paddy-irrigated rice- and water-control-based agriculture of the Yangtze Delta in eighteenth-century China with the scratch-the-soil-with-a-hoe agriculture of two thousand years before.

But as Thomas Robert Malthus first wrote in the 1790s, rising populations had put enough pressure on scarce natural resources to offset the benefits of better technology and keep living standards nearly constant for the people if not for the elite: American President Thomas Jefferson in 1803 A.D. certainly enjoyed a higher standard of living than Roman Consul Marcus Tullius Cicero in 63 B.C. But did Jefferson’s slaves enjoy a higher standard of living than Cicero’s? A large amount of archeological evidence has not yet found significant differences.

For the past two hundred and fifty years, since the start of the Industrial Revolution, the productivity of those workers who make things has exploded. Hand-spinners in the eighteenth century took 50,000 hours–20 full work-years–to spin 100 lbs of cotton into thread (Freeman and Louca (2001), and spinning of one sort or another took up perhaps 5% of total labor-time. Today it takes 40 work hours to spin 100 lbs. of cotton: a more than thousand-fold amplification of productivity in this one task.

As our productivity at growing crops and making things has exploded, demand for the things we make has grown too, but not fast enough to keep the crop-growing, food-cooking, mineral-extracting, clothes-making, box-carrying, and other goods-producing share of our economy’s labor force from falling. Today those who in any earlier age would be classified as “production workers”–and would have been the overwhelming majority of the labor force–are perhaps 20% of our economy, and the bulk of them are better characterized as machine-watchers and machine-fixers. According to Stanford’s Robert Hall, as early as 1980 there were twice as many salesmen in Ford-selling auto dealerships as there were assembly-line workers employed by Ford Motor Company.

So what are the rest of us–the other 80%–doing? In a sense, we all–from U.C. professors to chief technical officers to xerox operators, Ford Salesmen, cashiers, and parking-lot attendants–are and have long been information workers: people whose jobs are, if we examine them closely, largely concerned with determining what exactly the goods-producing sectors should make, how it should be made, where it should go, and to whom it should be distributed–and that is leaving aside the large chunk of our economy that is symbolic communication as an end in itself.

Today we see–not yet sharply, not yet clearly, but no longer dimly–the prospect that the ongoing technological revolutions in data processing and data communications will do for the “information” sectors of the economy something like what the Industrial Revolution did for goods-producing sectors like cotton spinning. As Steve Cohen over in the City Planning department here likes to say, you are now building the equivalent of the industrial-age tools for shaping and handling matter, but you are building tools for thought (Cohen, DeLong, and Zysman (2001)). And if we can figure out how to make these tools for thought fulfill their promise, they should produce a quantum jump in our technological power, economic productivity, and–we hope–quality of life of as many energy levels as the jump of the Industrial Revolution itself.

But there are major problems of social engineering and organizational design that stand in our way. A century or so ago, at the height of the Industrial Revolution, the market economy turned out to have an extraordinarily good fit with the developing industrial technologies of goods-making. It provided a framework of social organization that was extraordinarily effective in providing people with incentives to carry on activities that generated rapid technological development, capital accumulation, and economic growth.

An effective form of social organization faces decision makers with incentives that mirror the impacts of their actions on society as a whole.

Because the goods produced by industrial technologies were rival–that is, could only be of use to one person at one time–each person’s use of such a good diminished the supply available to the rest of society. Thus it made sense from the viewpoint of efficient distribution to require that users pay a price–diminish their ability to acquire and use other resources–for commodities. And those prices paid then gave producing organizations the resources to carry on and expand their activities.

Because the goods produced were excludable–that is, it was by-and-large straightforward to limit control over use to those authorized–it was easy and straightforward to push decision-making outward from the clueless bureaucratic center to the periphery where people on the ground might actually have a good sense of the situation, and of what should be done.

These three advantages–earmarking additional resources for successful and efficient production organizations, providing users with incentives for economically-efficient distribution, and decentralization of decision-making to where the knowledge was likely to be–were delivered by accident by the trade-and-market economic structure of Adam Smith.

But now as we try to realize the technological promise of information technologies, the old forms of economic organization no longer have a natural fit with the requirements of technological development and economic growth. Once an “information good” has been produced, sharing it with another person doesn’t reduce the rest of society’s resources and opportunities. So there is no efficient-distribution reason to charge a price for it.

But where then does the flow of signals to assess which production organizations are efficient come from?

In an earlier age we would be more inclined to rely on government funding, but these days we have a keen awareness of the advantages in applied development at least of semi-Darwinian competitive mechanisms, where investigators are responsible to investors seeking profits and not to committees seeking whatever committees seek.

Moreover, it is only with difficulty that information goods are excludable. But if their use can’t be restricted to authorized users, then the entire market-as-a-social-calculating-and-signalling mechanism simply breaks down. Unfortunately, attempts to make information goods “excludable” by various forms of use protection waste valuable time and energy: I shudder at the memory of having spent two hours on hold during three phone calls, and having spent another two hours of my time rebooting and reading installation error messages the last time I tried to upgrade one of the Adobe programs–GoLive–on this laptop. I doubt I’ll ever be able to face the prospect of buying another Adobe program again.

Two things, however, are clear. First, caught between “government failures” in applied research and the ever-larger “market failures” that will be created as the characteristics of information-age goods clash with the requirements for market efficiency, intermediate forms of organization–like large publicly-funded research universities–need to play an even larger role in research and development in the future than they have in the past.

Projects like CITRIS promise the benefits of government research–the wide distribution of knowledge and the acceleration of cumulative research–and the benefits of private entrepreneurship–the willingness to take risks and investigate large numbers of potential development projects rather than just those that have won the stamp of approval of a single central committee. It is the task of chancellors and deans, of course, to make sure that projects like CITRIS don’t wind up producing the drawbacks of both forms of organization: the strangulation by bureaucratic red-tape and committee infighting of government, combined with the restrictions on the distribution of information and the use of products that make a large share of private-sector development work duplicative of what has already been done.

Second, realizing the promise of the Societal-Scale Information Systems that are the Holy Grails of this quest will turn out to be a problem of social engineering as well as computer science. I have long wondered just why it was that the first half of the 1980s were the era of the IBM PC rather than of the DEC VAX–when the hardware cost of a VAX was, as best as I can guess, no more than 1/5 that of the equivalent number of 8086 machines, and when thanks largely to Berkeley UNIX there was no comparison at all in software. The answer lies somewhere in social engineering–that somehow paying out five times as much for inferior software was worth not having to wrestle with established MIS bureaucracies. But what the answer is I am not sure.

So let me turn this into a sales pitch for the social scientists at Berkeley interested in information technology–from Manuel Castells in sociology to Pam Samuelson and Mark Lemley at the law school to John Zysman and Steve Weber in political science to Hal Varian and his simians to Suzanne Scotchmer at public policy to the industrial organization and antitrust barons of the business school and the economics department–Glenn Woroch, Rich Gilbert, Dan Rubinfeld, Mike Katz, Carl Shapiro–and a host of others. I do not know of a place with a more vibrant and smarter community of scholars interested in the social engineering aspects of information technology.

And I do not know of a better place than this to assemble the resources to build the Societal-Scale Information Systems that can make information technologies realize their promise.

The New Socialism of Fools

Project Syndicate: The New Socialism of Fools by J. Bradford DeLong–bradford-delong-2017-08: BERKELEY – According to mainstream economic theory, globalization tends to “lift all boats,” and has little effect on the broad distribution of incomes. But “globalization” is not the same as the elimination of tariffs and other import barriers that confer rent-seeking advantages to politically influential domestic producers. As Harvard University economist Dani Rodrik frequently points out, economic theory predicts that removing tariffs and non-tariff barriers does produce net gains; but it also results in large redistributions, wherein eliminating smaller barriers yields larger redistributions relative to the net gains. Globalization, for our purposes, is different. It should be understood as a process in which the world becomes increasingly interconnected through technological advances that drive down transportation and communication costs…Read MOAR at Project Syndicate

Weekend Reading: James M. Buchanan (1970): The “Social” Efficiency of Education

De Maistre the executioner

You have to be able to hold in your mind two things about economist James M. Buchanan:

  1. He was a total loon:
    • a strong believer in the de Maistrean trinity of Patriarchy, Orthodoxy, Autocracy as necessary for society—essential Noble Lies.
    • a man who in 1970 wanted to shut down America’s universities as teachers of evil, and regretted the failure of nerve that made that impossible.
    • a man who saw Martin Luther King Jr. as a teacher of evil—whose response to the Civil Rights movement and its peaceful civil disobedience campaign was not “to make us love our country, our country must be lovely” but rather” but how dare he claim that an African American be “openly encouraged to use his own conscience”—rather than shutting up and accepting his subservient Jim Crow position.
  2. A man who saw things that other economists did not and would not have without him: The Calculus of Consent is a great book. James Buchanan was—as, IIRC, only Jim Poterba and I were willing to say at the post-announcement MIT economics faculty lunch in 1986—a defensible choice for the Nobel Prize in economic science.

If you cannot hold both those ideas in your mind at once, you do not understand James M. Buchanan:

James M. Buchanan (1970: THE “SOCIAL” EFFICIENCY OF EDUCATION: Il Politico 35:4 (December), pp. 653-662 This paper was presented at the General Meeting of the Mt Pelerin Society in Munich in September 1970: “In this paper, I shall examine the effects of modern education…

…on the socio-political-economic philosophy of university university students in the United States and the impact of this philosophy on social policy.

I shall examine the following propositions:

  1. For the first time, “education” is now effective. Students are acting out the ideas that they have absorbed in their academic experience.
  2. This effectiveness has only recently emerged because of:
    • the transformation of traditional conservative institutions-notably the family, the church, and the law.
    • economic affluence that has produced the relatively new “parasitic option” out of the more general “samaritan’s dilemma”.

I should emphasize that these are propositions to be examined and discussed. They provide one possible interpretation of what we see around us in American higher education in 1970. Alternative interpretations are possible, and these lead to quite different implications. By discussing the propositions here, I argue only that they seem sufficiently plausible to warrant my concentration in this paper, nothing more.

Education is Effective: My central hypothesis is that students in American colleges and universities are demonstrating that they have indeed paid some attention to what their instructors have been saying to them. They are acting out, in word and deed, what they have been taught in classrooms from elementary schools through the university postgraduate schools, what they have seen on their television screens, what they have read in their newspapers, from the underground rags through
the New York Times.

This effectiveness of education is new to our time. But I do not suggest that it results from any sudden or dramatic change in educational inputs. My subsidiary hypothesis explaining the change is quite different. The educational inputs have, of course, changed, but the changes have surely been gradual over the last forty years. The observed output has been rather suddenly transformed because only in the 1960’s did the inputs come to have much influence on outputs. The production function shifted. In the 1960’s, and for the first time, the socio-political inputs into the educational process began to be “efficient”. Until this decade, the effects were relatively unobservable. What we are now getting by contrast is a highly visible output that seems directly to be related to inputs. The reason for this change lies in the transformation of countervailing influences.

An implication of my central hypothesis is that the educational process has never provided an effective means through which the traditional socio-political values of American (read Western) institutions have been transmitted. Hence, we have not witnessed some implicit conspiratorial take over of a once-near-ideal educational structure by those bent on undermining the traditional system. At best here, we have experienced some shifting in the input mix toward the inclusion of more anti-market, _dirigiste _elements, which have been, however, long in the dominant position. The values of the system stood the shocks of the nineteenth and early twentieth centuries in spite of the educational structure because the countervailing influences were serving an effective social role. These influences may be broadly summarized in three institutions-the family, the church, and the law.

Institutions of Social Order: I do not suggest that these institutions exerted their primary influence in some positive sense. They embodied some explicit indoctrination, of course, some teaching of the value standards of the culture, some transmission of an appreciation for the structure of social rules. I suggest, however, that these institutions were more important in a negative way. As they operated, at least until the mid-dle of this century, the functional role of these institutions was one of preserving and enforcing the rules of civil order. They were essentially conservative in function; they acted not so much to instill positive support for these rules as to forestall and to prevent overt departures from these rules. That is to say, these institutions served to contain potentially disruptive criticisms of the established order. Perhaps more accurately, we may say that the criticisms of society were damped by these essentially conservative institutions.

Some examples may be useful here because the historical role imputed to these institutions is an important element of my hypothesis about educational process. The family did not change the value system of the six -year old child so as to make him really not want to take candy from the baby. Family control was established in the
quite different sense of informing the six-year old that, should he take the candy from the baby, he would be spanked. Order within the family structure was preserved by the threat of sanctions. Similarly, the church did not fulfill its socially functional role by effectively modifying man’s inherent proclivity to sin. Despite its teaching of the ethic of Christian love, the church’s primary behavioral influence stemmed from its instillation of fear of divine retribution. The fear of hellfire rather than the joy of love was instrumental in guaranteeing tolerable behavioral standards among ordinary men.

More importantly perhaps than either of these institutions, the family and the church, was the institution which we may broadly call “the law”. Historically, law served the socially efficient role summarized in the term “enforcing the rules”. Individuals were led to behave in accordance with established rules because they were led to believe that overt departures from these rules would be subject to prosecution. Men refrained from stealing because they fea-ed the consequences-arrest, conviction, prison terms. This may have been accompanied by relatively little weight on the ethic of obedience.

In all three institutions, the fear of punishment, once instilled, led to habitual patterns of behavior which embodied adherence to established rules. Once such habits were formed, the immediate and explicit threat of retribution need not have been omnipresent.

Education in Institutional Order: Within a social order in which the family, the church, and the law fulfill the roles outlined above, the educational process can quite different from that in a social structure where these institutions fail. In a regime of institutional order, the educational experience can best be organized and supported in an atmosphere of of critical inquiry. Indeed, the whole notion of scholarship stems from this conception of education’s functional role in a social order. He is the institutional location for the free spirits, for the intellect gadflys, for the heretics of all ages. The advantages of unrestricted freedom to follow “truth where it may lead” were secured precisely because the potential excesses were contained, so to speak, in the institutional cocoon that was the university. The community of schoglars went about their essential business of discussing truth, arguin and properly so, about angels on pins, with little or no explicit concern for the world about them, and, more importantly, arguing as if relevance did not matter. The “ivory tower”, the “walls of ivy”, the “groves of academe”-these are not idle metaphors. They accurately describe what the university was supposed to be in its ideal-type image as it formed a part in an ordered society.

In this protected, cloistered educational process, students could, and did, examine, adopt, and espouse almost all conceivable heresies-right, left, up, down, and center, reformist, revolutionary, reactionary. Student energies were dissipated, student concern was expressed-but always within the confines of the academic groves. In these colonies, as it were, students were rarely instilled with the existing value standards of the external world, including the socio- economic. Most students passed through their university-college years as radical reformers if not latent revolutionaries, and we all recall the saying that everyone is a socialist at twenty.

It is important to recognize this in any consideration of the role that the teaching of economics and social science has played. The students’ image of the entrepreneur, or, more broadly, the students’ conception of the workings of the market structure, has rarely been either the sophisticated understanding of the professionally-trained market economist or the more pragmatic appreciation of the man of affairs. The spontaneous coordination of the market process, the Mandeville-Smith vision of the invisible hand-these are not ideas that carry with them instant and romantic appeal. They stir the intellect rather than the emotions, and rare indeed has been the stu-dent whose passions rise at the clopping of hooves of Böhm-Bawerk’s horses at the trading fair. Quite by contrast, the passion for the market as a social institution can perhaps only emerge from the quiet study of one whose life resembles that of a Scotsman-cum-philosopher. The passions of the students are much more likely to be stirred by instant identification of evil men, by the shining ray of revealed truth, by the gospel of social salvation.

If the students’ image of the businessman, the students’ conception of market order, has been the set of confusions that I have described, how can we explain, historically, the perseverance of this institution through the centuries in the Western World? If some minimal transmission of the value structure has not been accomplished by the educational process, how can we explain the continuing support for traditional socio-economic-political institutions?

Survival Potential of Market Institutions: I should answer these questions in two ways. I should argue, first, that there is tremendous survival potential in free market institutions. Indeed, it may be argued that some sort of market arrangements will more or less naturally emerge out of almost any socio- political environment. So long as men are men, which to economists means so long as they are preference functions, other men will find it to their personal advantage to satisfy the private wants of potential buyers. This is the very meaning of the term “laissez-faire”. If left alone, markets will emerge, and even sometimes in spite of a complex maze of regulations and restrictions. The results may not, of course, attain even tolerable efficiency since trades can be organized that will exaggerate rather than reduce initial distortions introduced by arbitrary interferences. Nonetheless, markets will be formed within whatever institutional structure that exists. If we accept the survival hypothesis, it is easy to see how market institution can remain and even prosper in a cultural-intellectual environment or climate that is alien to a market-oriented philosophy. The students, young and old alike, the scholars and intelligentsia, may not understand the market order, and they may use it as the butt some of their most vitriolic criticism. They may rail at its neglect of human values, its elevation of property rights about human rights, at its dismal view of human nature. At the same time, however, practical men may be getting and spending, providing goods and services in increasing abundance not only for themselves and other ordinary mortals, but for the otherwordly intelligentsia as well.

Perhaps I exaggerate here. Every age and every country has its Mises, its Hayek, its Frank Knight, its Milton Friedman. And there probably is some minimal level below which the numbers of scholars who understand and espouse a market philosophy cannot fall if the institutional structure itself is to be preserved. This level may itself vary in some direct relationship to the power of governments to intervene. I do not think, however, that my exaggeration seriously distorts the description of affairs that may have characterized the Western World for almost a century. In essence, I should argue that the market has survived in spite of the false conceptions of the great mass of intellectuals.

This is not to denigrate the contributions of the relatively few scholars and social philosophers, the few teachers at all levels, when I say that it has been the survival characteristics of the free institutions rather than their powerful messages that have been effective. The permanent and continuing messages of the antimarket intellectuals failed, until quite recently, because of the containment of these messages within the ivory towers, not because of the overriding weight of the counterarguments offered by the adversary minority. Neither the majority of pundits who have traditionally been grossly ignorant in their denunciations of the “blind forces of the market” nor the small minority of the market’s academic-intellectual defenders have exerted much influence on the historical development of social institutions. In this particular respect, Keynes was, I think, wrong. The
academic scribblers exerted far less influence in undermining the free society than their numbers might have allowed us to predict. I hypothesize here that the reason for this relative absence of influence lies in the containment exercised by the traditional conservative institutions referred to above-the family, the church, and the law.

The Social Value of Ineffective Education: As I have indicated earlier, these institutions may have done little or nothing to convert persons into ideological supporters of traditional and existing social values. They did, however, force persons to conform to the external embodiments of those values. The individual accepted the fact that he must obey the rules or suffer the consequences of his disobedience. He was not allowed the romantic option of disobedience without sanction. The alternatives that he confronted were confined to adherence to those rules that existed or the suffering of punishment for violation. In other words, the individual was forced to choose between joining the system, the “establishment”, or becoming an outcast who could expect to be treated as such. He was not permitted the soft option offered in a parasitic role, the prospect of opting out of the system while continuing to survive on the system’s charity.

Within this structure of society, it should be emphasized that the educational process served a useful social function. It allowed for, and encouraged, open criticism of and overt dissent to prevailing value standards and existing institutions. The university or college provided the proper place to allow the heretic free reign. Heretical challenges from the academe stirred responsiveness in the institutional order, and a gradual transformation of both values and institutions took place. Reform was accomplished by allowing the heretic to advance revolutionary notions, well contained within the academe, which might then be pragmatically translated into practical policy improvements.

In any directly observable sense, this education was almost totally infective. In a longer perspective, however, the short-run ineffectiveness of education was precisely its social strength. The process was useful because students were not allowed directly to impose the ill-informed and romantic nonsense learned from the academe in the great world beyond. In this context, it did not really matter that the prevailing socio-political philosophy of the predominant majority of academicians ran counter to the institutions of the social order.

The Failure of the Institutions of Order: There is general agreement that the conservative institutions noted-the family, the church, and the law-no longer serve the historical role outlined above. The child in the permissive family secures no sense of obedience to authority, no fear of punishment for disobedience. His church leaders have taken all fear of divine retribution off his shoulders, and the fires of hell are not promised as the consequences of his transgressions. More seriously than either of these, the law itself has been subverted into an agency for positive reform, for changing existing rules as opposed to its role in enforcing these rules that do exist. The individual is openly encouraged to use his own conscience in determining whether or not he should obey a particular law, and often with little or no threat of punishment if he disobeys.

All of these institutions of negative reinforcement for orderly behavior have been, at best, seriously eroded. This suggests clearly that the social need for positive reinforcement is correspondingly increased. If the six-year old fears no spanking for taking the baby’s candy, he must be taught the ethical value of respecting others* property. If the potential arsonist fears neither hell’s fire nor the strong arm of the law, he must be positively indoctrinated with the value of exercising mutual respect for the rights of other men. The possible role of education in this positive reinforcement process seems obvious. The glint in the eye of the professional educator as he mouths the traditional cliches about the “liberal arts” can
be seen a mile away. He sees that education may only now come into its own as a major formative influence.

But this is precisely what has come to happen, and most of us do not at all like at all what we are seeing as a result. We see students now being allowed to act out what we previously allowed only as academic fantasies. Unrestrained and with little or no sense of mutual respect and tolerance, they flaunt ordinary rules of conduct; they disrupt others in the pursuit of their affairs ; they have almost destroyed the basic order that once prevailed on campuses everywhere.

All of this would be disturbing enough if the students’ excesses were confined within the ivy walls. But having learned none of
the simple virtues in either family, church, or school, why should we expect the child-men to behave differently in the great society beyond the groves? The animals are in the streets, literally, and if college buildings burn so do banks, as we are finding this year in America.

The Parasitic Option: If we do not like what we see and if we accept my hypothesis about the reasons, there exists a simple solution. If education is now being effective for the first time and the results are not quite what we might have expected, the simple solution is one of cutting off the external sources of support. If society does not think that it is getting its money’s worth from the educational processes as they exist, if the admitted advantages of free inquiry are more than outweighed by the negative effects of direct political action by militant groups centering their headquarters on the nation’s campuses, why not simply close down the universities?

This seems a straightforward question, but closer examination of modern attitudes reveals that, despite all of his misgivings about what he sees, neither the ordinary citizen nor his political representative is willing to take such steps toward corrective solutions. Unwilling to cut off public and private financial sources, he acquiesces in the continuing deterioration that he sees all about him. Why is the ordinary citizen so reluctant to act here? This reluctance is but one manifestation of the most pervasive quality of our age, one that also explains the breakdown of the inst tutions of order previously discussed. Economic affluence has placed modern man in what I call the “samaritan’s dilemma”. He is simply unwilling to force those who refuse to join the system to exist wholly outside the system. He is quite willing to allow for the existence of parasites, those who feed upon him without contributing to his well being. This is essentially what the student class has already become, and it is also what the postgraduate class may become during the 1970’s.

Apparently unwilling to enforce the rules of the existing system on the student classes, and apparently unwilling to confine the behavioral excesses to the campuses, modern man finds himself being rapidly forced to allow the parasites entry directly into the political-decision process. The spring of 1970 marked the possible beginnings of an important shift in American policy, a shift that I view with much gloom. Students were successful in university after university in politicizing the academe, and, beyond this, they were successful in making their voices heard by political leaders. With little regard for facts, and spurred by the romantic cliches of the moment, the masses formed, with little or no resistance.

It is in this perspective that we must come back to our assignment. The student’s image of the entrepreneur, his conception of market order, did not really matter very much so long as his criticism was left in the ivy walls and the facts of life forced him to join the system and abide by its existing rules once his college-university years were passed. As most of us realize from personal experience, his radical and romantic fantasies soon faded away a« he matured, intellectually and psychologically, becoming gradually aware of the values of the institutions that surrounded him. All of this may be changing, and very rapidly, if the student and poststudent of the 1970’s is allowed to obtrude his own naive, uniformed, and romantic fancies directly into the political process, while himself remaining a parasite feeding on the rest of society. For the first time, the student’s failure to understand and to appreciate the workings of the market order, for the first time his failure to understand and to appreciate the crucial role played in such an order by the entrepreneur, by the profit and loss, reward-punishment structure of the market, may become critical influences on the formation of social policy. For the first time in the United States, the quasi-comic mout- hings of neo- Marxist slogans may come to be taken seriously by practicing politicians, as seems to be the case in 1970.

There is no way that we can get the educational house in order within the medium-term future. If my rather pessimistic picture contains elements of descriptive reality (and I hope that it does not), Western society’s main task is to shift itself, by brute resolution, out of the samaritan’s dilemma, to close off the parasitic option now available to the student and post-students who refuses to conform to ordinary rules of conduct. I wish that I could think modern man capable of even this modest step toward some restoration of sanity.

Yes: The CBO’s Growth Forecasts Are Not Unreasonable…

The Trump administration (I won’t say “Donald Trump”, because I am not convinced that Donald Trump knows what the Congressional Budget Office is) wants people to take on the CBO’s projections that real GDP growth is likely to average a hair less than 2 percent per year.

And professional Republicans John Cogan of Stanford, Glenn Hubbard of Columbia, John Taylor of Stanford, and Kevin Warsh of Stanford deliver.

Michael Strain provides them with a warning—which they do not and will not heed:

Michael Strain: Stop Bashing the CBO, Republicans: “A word to the wise from a fellow conservative: Expert analysis isn’t your problem; bad legislation is…

…The nonpartisan agency… was the subject of a bizarre attack ad by the White House last month. Mick Mulvaney, President Donald Trump’s budget director, has publicly questioned whether “the day of the CBO” has “come and gone.” Former House speaker Newt Gingrich recently advocated: “Abolish CBO. It is totally destructive. It is totally dishonest.” Last week, members of the House Freedom Caucus authored amendments that would cut the CBO’s funding in half and eliminate the division responsible for producing cost estimates of legislation…. The GOP is unwise to delegitimize the CBO even out of pure political self-interest. The agency frequently produces analysis that Democrats could live without…. Republicans are in power now, but they won’t be forever…

And Michael offers advice on how to criticize the CBO:

I often find myself thinking a particular CBO analysis is a little off base, that I would have used different assumptions, or done the analysis differently. There is often significant uncertainty in analysis as ambitious as that frequently produced by the CBO. And it would be good for the CBO to be more transparent about its analysis and with its models…

In short: Present a better analysis than the CBO does! And argue your case!

This is advice which Cogan, Hubbard, Taylor, and Warsh do not follow.

As best as I can see, their critique of CBO is not what I would recognize as an analysis of CBO’s growth estimates, or, indeed, any other sort of quantitative and reality-based growth-accounting exercise. It is, rather, a few stray sentences like:

The data are not supportive of the popular contention that the United States is in the midst of a long-term decline in productivity growth…

supported by a fake graph—the one on the left, when they should be plotting something much more like the one on the right:

Preview of The Trump administration I won t say Donald Trump because I am not convinced that Donald Trump

Drawing random arrows to try to fool naive readers into thinking that statistical trends are things that they are not is not something that should be done by anybody I would call an economist.

So what is to be done about this degradation of public discourse? Commenters at Bloomberg have ideas and observations:

Mark Buchanan: Economists Are Cheating Their Profession: “Ideology remains a problem…

…“Economic theory and historical experience,” it boldly asserts, “indicate economic policies are the primary cause of both the productivity slowdown and the poorly performing labor market.” This willfully misrepresents current thinking. Economists hold diverse views on the roots of the recent malaise, and remain divided and uncertain about the fundamental causes of growth…. When professional economists write as experts and claim theory as a basis for their views, they also have a duty to present that theory—and other economists’ thoughts about it—honestly. Their failure to do so is “unprofessional,” as University of California at Berkeley economist Brad DeLong rightly put it….

What, if anything, [will] the profession… do about it[?] Does it have standards? If so, can it enforce them?… How can the profession combat such capture? [Luigi] Zingales has suggested public shaming, following the example of media efforts such as the film “Inside Job”…. Shaming seems appropriate. After all, public trust is a resource from which all economists benefit. If they want to preserve it, they should draw guidance from Nobel Prize winner Elinor Ostrom. She showed that successful management of such resources typically requires an effective means to maintain group standards and values—for example, by punishing and deterring self-serving behavior…

Noah Smith: Supply-Siders Still Push What Doesn’t Work: “Few critics have focused on what I see as the weakest part of Cogan et al.’s essay…

…the claim that lower taxes, deregulation and reduced government spending can boost growth significantly. Tax cuts have generally proven to be a big bust…. The most glaring example is Kansas Governor Sam Brownback….

On deregulation, I’m much more sympathetic to the supply-sider concerns. Some regulations are probably hurting economic dynamism by protecting incumbent industries, while others would fail a cost-benefit test. But other regulations probably help the economy…. It’s no easy job to tell the good regulations from the bad. The Trump administration has promised to tackle this thorny problem, but given its record of general ineffectiveness, there’s no reason to assume, as Cogan et al. do, that it will make wise choices….

As for fiscal austerity, there is no reason to think that any further gains can be made there…. Basic economic theory says that low deficits boost growth by lowering long-term interest rates — but with rates already near record lows, there isn’t much scope for improvement in this regard…

Justin Fox: Yes, Financial Crises Do Bring Hangovers: “I was struck by the second paragraph of the piece, written by John F. Cogan, Glenn Hubbard, John B. Taylor and Kevin Warsh…

…The view that periods of weak economic growth tend to follow major financial crises rests heavily on the work of Harvard economists Carmen Reinhart and Kenneth Rogoff…. After I wrote a column in March that relied heavily on Reinhart and Rogoff’s research, the abovementioned John B. Taylor responded thusly:

Old hangover theory of weak recovery @foxjust was demolished by Bordo others. Problem=policy

Hmm, I thought when I saw that. There were financial crises of 1973 and 1981? Yes, there were a couple of prominent bank failures in the U.S. in the wake of the 1973-74 and 1981-82 recessions (Franklin National Bank in 1974 and Continental Illinois in 1984), but they certainly didn’t cause those recessions. The 1990 recession did occur in the midst of the long-running U.S. savings and loan crisis, but a) it was followed by a really weak recovery and b) that crisis, however painful, was still nowhere near as dire as the global shock of 2008.

When I looked at… Bordo and… Haubrich… my puzzlement did not abate…. Nobody in the 1890s thought the aftereffects of 1893 were modest and brief. The recovery that followed the recession that started in 1929… was indeed quite impressive, but it didn’t start until 1933…. That’s why they call it the Great Depression, people!

In sum, I find Reinhart-Rogoff much more convincing than Bordo-Haubrich. This doesn’t mean that economic hangovers following financial crises are inevitable…. But… Bordo came nowhere near “demolishing” the hangover theory…

Cogan, Hubbard, Taylor, and Warsh is not a contribution to the economic literature either on growth-accounting trends or on the effects of financial crises, it is not a summary and survey of either of the two literatures, and it is not a better analysis of what the future economic growth baseline should be than CBO has provided. So what do these professors and fellows from Stanford and Columbia think they are doing, if not providing ammunition for what Michael Strain has correctly identified as an extraordinarily dubious enterprise? And why are they doing it?

Clueless DeLong Was Clueless About What Was Coming in 2007 and 2008: Hoisted from the Archives

From November 2008: Why I Was Wrong… Calculated Risk issues an invitation:

Calculated Risk: Hoocoodanode?: Earlier today, I saw Greg “Bush economist” Mankiw was a little touchy about a Krugman blog comment. My reaction was that Mankiw has some explaining to do. A key embarrassment for the economics profession in general, and Bush economists Greg Mankiw and Eddie Lazear in particular, is how they missed the biggest economic story of our times…. This was a typical response from the right (this is from a post by Professor Arnold Kling) in August 2006:

Apparently, the echo chamber of left-wing macro pundits has pronounced a recession to be imminent. For example, Nouriel Roubini writes, “Given the recent flow of dismal economic indicators, I now believe that the odds of a U.S. recession by year end have increased from 50% to 70%.” For these pundits, the most dismal indicator is that we have a Republican Administration. They have been gloomy for six years now…

Sure Roubini was early (I thought so at the time), but show me someone who has been more right! And this brings me to Krugman’s column: Lest We Forget

Why did so many observers dismiss the obvious signs of a housing bubble, even though the 1990s dot-com bubble was fresh in our memories? Why did so many people insist that our financial system was “resilient,” as Alan Greenspan put it, when in 1998 the collapse of a single hedge fund, Long-Term Capital Management, temporarily paralyzed credit markets around the world? Why did almost everyone believe in the omnipotence of the Federal Reserve when its counterpart, the Bank of Japan, spent a decade trying and failing to jump-start a stalled economy?

One answer to these questions is that nobody likes a party pooper…. There’s also another reason the economic policy establishment failed to see the current crisis coming. The crises of the 1990s and the early years of this decade should have been seen as dire omens, as intimations of still worse troubles to come. But everyone was too busy celebrating our success in getting through those crises to notice…

[I]n addition to looking forward, I think certain economists need to do some serious soul searching. Instead of leaving it to us to guess why their analysis was so flawed, I believe the time has come for Mankiw, Kling, and many other economists to write a post titled “Why I was wrong”…

And I respond:

Let me say what things I was “expecting,” in the sense of anticipating that it was they were both likely enough and serious enough that public policymakers should be paying significant attention to guarding the risks that it would create:

(1) A collapse of the dollar produced by a panic flight by investors who recognized the long-term consequences of the U.S. trade deficit.


(2) A fall back of housing prices halfway from their peak to pre-2000 normal price-rental ratios.

I was not expecting (2) plus:

(3) the discovery that banks and mortgage companies had made no provision for how the loans they made would be renegotiated or serviced in the event of a housing-price downturn.

(4) the discovery that the rating agencies had failed in their assessment of lower-tail risk to make the standard analytical judgment: that when things get really bad all correlations go to one.

(5) the fact that highly-leveraged banks working on the originate-and-distribute model of mortgage securitization had originated but had not distributed: that they had, collectively, held on to much too much of the risks that they were supposed to find other people to handle—selling the systemic risk they had created, but not all of it, and buying the systemic risk that their peers had created.

(6) the panic flight from all risky assets–not just mortgages–upon the discovery of the problems in the mortgage market.

(7) the engagement in regulatory arbitrage which had left major banks even more highly leveraged than I had thought possible.

(8) the failure of highly-leveraged financial institutions to have backup plans for recapitalization in place in the case of a major financial crisis.

(9) the Bush administration’s (and the Federal Reserve’s!) sticking to a private-sector solution for the crisis for months after it had become clear that such a solution was no longer viable.

We could have interrupted this chain that has gotten us here at any of a number of places. And I still am trying to figure out why we did not.

Fifteen Theses on “The Wealth of Humans” and “After Piketty”

Notes for the July 11, 2017 Research on Tap event:

  • Ryan Avent (2016): The Wealth of Humans: Work, Power, and Status in the Twenty-first Century
  • Heather Boushey, J. Bradford DeLong, and Marshall Steinbaum: After Piketty: The Agenda for Economics and Inequality

Meditations on Ryan Avent:

Ryan Avent: What will happen to ‘The Wealth of Humans’? “This really dramatic technological change… the digital revolution… is adding hugely to the amount of effective labor that’s available to firms…. A lot of routine tasks in factories and in offices… [to] be automated…. High-skilled jobs… use these new technologies to do work that used to require a lot more people to do and in the process are displacing workers… enormous, abundant labor…. Employer[s] with… huge reservoir[s] of willing workers at very low wages… say…. “I don’t need to invest in this labor-saving technology…. replace my cashiers with automated checkout… replace the people moving boxes in the warehouse with robots”. And so you get this sort of self-limiting technological change…. The more powerful the digital revolution… the more people… looking for low-wage work… the less of an interest firms have in using machines to replace them…”

  1. For the past thirty and the next thirty years—but probably not more—we are in all likelihood facing the increasing drift toward inequality driven by the rise of the Overclass as identified by Thomas Piketty. As long as the Overclass has enough control over the political system to manipulate it to reap enough rents to peg the rate of return on wealth—not physical capital, wealth—at 5%/year, we will see much if not all of the benefits from economic growth flowing to this Overclass, which will increasingly be an overclass of heirs and heiresses, rather than one that can claim that its wealth is due to some sort of meritocratic chops.

  2. For the past ten years and the next ten years—if not more—our biggest and principal problem has been an economy in secular stagnation afflicted by slack demand, and that in a high -pressure economy like we had under Clinton in the late 1990s or Kennedy-Johnson in the 1960s, most of what we see as our economic problems would not melt completely away but be much reduced. Robots and artificial intelligence were overwhelmingly seen not as problems but as opportunities in the high-pressure economy of the later 1990s.

  3. A generation ago we feared. But then we feared not the robot but the mainframe—and our fears of the mainframe then were like our fears of the robot now, save that while we now fear that robots will leave us with no work to do, we feared then that mainframes would leave us with no meaningful work to do and no work to do save being a mainframe-controlled dumb robot. As the Apple commercial said, we feared that 1984 would be like 1984: Those fears were vastly overblown: we did not become robots subordinated to mainframes; instead, microcomputers and the internet became our personal intelligent tools.

  4. The human brain is a massively parallel supercomputer that fits inside half a shoebox. It draws 50 watts of power. It is an amazing innovation, analysis, assessment and creation machine. 600 million years of proto-mammalian and mammalian evolution coupled with the genetic algorithm means that almost every single human can solve AI problems far beyond our current engineering reach—so much so that much of what our machines find impossible our brains find so trivially easy that we call such capabilities “unskilled”. When combined with our brains, human fingers are amazingly fine manipulation devices. And human back and leg muscles—especially when testosterone soaked—are quite good at moving heavy objects. Thus back in the environment of evolutionary adaptation, we used our brains, our big muscles, and our fingers to lead cognitively interesting—if stressful and short—lives.

  5. Back in the environment of evolutionary adaptation, we used our brains, our big muscles, and our fingers to lead cognitively interesting—if stressful and short—lives. Short: life expectancy at brith of 25 or so. Stressful: watching relatively young people die around you all the time is a significant source of stress. And in order for the average woman to have two children who survive to reproduce, the average woman would have had to have three reach adulthood, about four reach the age of five, about six live births, and about nine pregnancies—that’s the average. Up until 250 years ago, the average woman spent about six years pregnant and eighteen years breastfeeding. Some more. Some less.

  6. History has rolled forward since the hunter-gatherer age. And as history has rolled forward, we have figured out other things to do to add economic and sociological value than using our backs and legs to move things, our fingers to grasp things, and our brains to decide what to hunt and gather. Using backs to move heavy objects and our fingers to perform fine manipulations in cognitively-interesting ways has, relatively, declined.

  7. As our use of our backs and fingers guided by our brains to create value has declined, we have turned to: (1) turning many of us into robots ourselves, performing simple routinized repetitive and vastly boring tasks to fill in the gaps in value chains between the robots that we know how to build; (2) jobs as microcontrollers for domesticated animals and machines—the horse does not know what plowing the furrow is—(3) finding jobs as relatively simple accounting and software bots, keeping track of stuff, what it is useful for, and how its use is to be decided; (4) becoming personal servitors; (5) becoming social engineers—trying to keep all those things and all those people—especially, perhaps, trying to keep those brains soaked in testosterone—somehow working in harmony, somehow pulling together, although admittedly with limited success; and (6) remaining innovators, analyzers, assessors, and creators as well.

  8. Backs started to go out with the domestication of the horse. Fingers began to go out with the invention of the spinning jenny. But humans-as-microcontrollers, humans-as-accounting-‘bots—paper shufflers—and humans-as-the-robots we cannot yet build—took up all the job slack. Every horse needs a microcontroller. And a human brain was the only possible option. Even today, to a large amount every textile machine needs a human watching it at least part of the time. It doesn’t know when it’s gone wrong. It has no clue how to fix itself. It no more understands the idea of “fixing” any more than Alpha-Go understands that it is playing Go, and not just solving a problem of outputting a two-element vector in response to a 19 x 19 matrix of inputs with the additional structure that the output changes the matrix and that the possible matrices have a value-function structure.

  9. Now, however, we can finally peer into a future in which the microcontrollers and the accounting bots are on their way out in a manner analogous to the backs and the fingers. But this is our future. This is not our present. For the past ten years and the next ten years—if not more—our biggest and principal problem has been an economy in secular stagnation afflicted by slack demand, and that in a high -pressure economy like we had under Clinton in the late 1990s or Kennedy-Johnson in the 1960s, most of what we see as our economic problems would not melt completely away but be much reduced.

  10. What do we see when we peer into a future in which the microcontrollers and the accounting bots are on their way out in a manner analogous to the backs and the fingers? Fortunately, one thing this brings with it isthe forthcoming extinction of the the jobs that treat humans as simple robots: simple cogs in the machine that is Henry Ford’s River Rouge assembly line. Many occupations that vastly underutilize the massively parallel supercomputer that fits in half a shoebox are on the way out—and good: for those are not properly “human” jobs at all.

  11. Not yet, but starting soon, and continuing for perhaps the next hundred years, we face the deep problem of the obsolescence of human brains as resources that can be employed—or, rather, underemployed—to create substantial economic value. Over the past six thousand years, ever since the domestication of the horse, we have seen the erosion, at first slowly and in the past two centuries rapidly, of the obsolescence of human muscles as resources that can be employed to create substantial economic value. But we have benefited because human brains underemployed—as microcontrollers for domesticated animals and machines, and as relatively simple accounting and software bots—have nevertheless been of great and increasing value. But now our microcontrollers are better microcontrollers than human brains, and our software accounting ‘bots are becoming better accounting ‘bots than human brains. Not next year, and not next decade, but further out by some unknown time, humans’ jobs will be as: personal servitors, social engineers, and innovators, analyzers, assessors and creators. Here we might well, someday, have a huge problem.

  12. The market economy will amply fund AI research that replaces workers in capital intensive production processes by machines. Such industries have mammoth returns to scale. They thus tend to be characterized by large oligopolies. And so the firm that funds such labor-replacing research will capture with its own scale and in its own value chain a substantial part of the benefits of such R&D. That means that the combination of coming AI with a market economy might well be absolute poison for equity and equitable growth. It will race ahead with shedding workers in capital intensive production processes.

  13. The market economy will not amply fund AI research that assists and amplifies workers in labor intensive production processes. Such tend to be small scale. The inventors and the innovators cannot capture even a small part of the benefit in their own production processes and value chains. And intellectual property is a very weak reed indeed to rely on to fix the problem—in fact, intellectual property is more likely to be the problem than the solution, cf. Nathan Myhrvold, and Intellectual Ventures.

  14. The combination of coming AI with a market economy might well be absolute poison for equity and equitable growth. It will race ahead with shedding workers in capital intensive production processes. There will be—as Laura Tyson and Mike Spence pointed out in their contribution to Heather, Marshall, and my After Piketty book—a synergy between the dangers posed by the Rise of the Robots on the one hand and the inequality generating forces analyzed by Thomas Piketty in his Capital in the Twenty-First Century on the other.

  15. Technological progress could rescue us from Pikettyian dystopia. Robots could be intelligent tools. AI could be gold for equity: amplifying the capabilities of workers in labor intensive production processes would, as John Maynard Keynes once said, bring us vastly closer to economic El Dorado. Recall how a generation ago we feared not the robot but the mainframe—and our fears of the mainframe then were like our fears of the robot now, save that while we now fear that robots will leave us with no work to do, we feared then that mainframes would leave us with no meaningful work to do and no work to do save being a mainframe-controlled dumb robot. As the Apple commercial said, we feared that 1984 would be like 1984. But we are unlikely to see a repeat of the microcomputer revolution. Firms will not invest on a large scale in AI that amplifies the capabilities of labor in labor intensive industries. It will not happen unless some NGO does. How about an engineering school? How about an engineering school at a public university?

Public Spheres for the Trump Age: Fresh at Project Syndicate

Fresh at Project Syndicate: Public Spheres for the Trump Age–bradford-delong-2017-07: BERKELEY – In many societies, universities are the main bastions of ideological and intellectual independence. We count on them to transmit our values to the young, and to support short- and long-run inquiries into the human condition. In Donald Trump’s America, they are more important than ever.

Unlike universities, for-profit media enterprises have never been up to the task of nurturing a robust “public sphere.” Inevitably, their coverage reflects enormous pressure to please the base – their advertisers or investors – or at least to avoid giving offense. That is why the American writer and political commentator Walter Lippmann – no stranger to journalism – ultimately put his trust in public intellectuals working in universities, think tanks, or other niches. Read MOAR at Project Syndicate

After Piketty: Capital in the Twenty-First Century, Three Years Later

Introduction to: After Piketty: The Research Program Starting from Thomas Piketty’s Capital in the Twenty-First Century

Thomas Piketty’s Capital in the Twenty-First Century is an astonishing, surprise bestseller.

Its enormous mass audience speaks to the urgency with which so many wish to hear about and participate in the political-economic conversation regarding this Second Gilded Age in which we in the Global North now find ourselves enmeshed.1 C21’s English-language translator Art Goldhammer reports (this volume) that there are now 2.2 million copies of the book scattered around the globe in 30 different languages. Those 2.2 million copies cannot and should not but have an impact. They ought to shift the spirit of the age into another, different channel: post-Piketty, the public-intellectual debate over inequality, economic policy, and equitable growth ought to focus differently. We have assembled our authors and edited their papers to highlight what we, at least, believe economists should study After Piketty as they use the book to trigger more of a focus on what is relevant and important.

Link to: After Piketty: The Agenda for Economics and Inequality


Hoisted from the Archives from 2007: How Supply-Side Economics Trickled Down…

Hoisted from the Archives: How Supply-Side Economics Trickled Down… Bruce Bartlett’s piece on supply-side economics:

How Supply-Side Economics Trickled Down – New York Times: AS one who was present at the creation of “supply-side economics” back in the 1970s, I think it is long past time that the phrase be put to rest. It did its job, creating a new consensus among economists on how to look at the national economy. But today it has become a frequently misleading and meaningless buzzword that gets in the way of good economic policy…

sparked an interesting and useful debate at Mark Thoma’s Economist’s View (which I previously noted).

After thinking about it, I want to weigh in again–on the side of Bruce Bartlett as opposed to Paul Krugman. It’s not that Paul says anything wrong about what he and his MIT colleagues thought at the end of the 1970s, but IMHO he underestimates the intellectual gulf between Cambridge and Washington.

There are two issues here–stabilization policy and growth policy.

(1) On stabilization policy: Bartlett says that the Keynesians around 1980 believed that full employment should be produced via fiscal policy–spending increases and tax cuts, preferably spending increases, to boost aggregate demand–and that inflation should be controlled via incomes policy–jawboning unions to restrain wages and businesses to keep a lid on prices, tax penalties for price increases, excess-profits and other taxes to provide incentives to keep wages and prices close to previous nominal anchors, and the threat and perhaps the reality of wage and price controls. Monetary policy, Bartlett says they said, was next to useless in controlling aggregate demand. And the principal effect of fiscal policy was not its impact on the supply side–on incentives to work and invest–but its demand-side impact on the volume of spending.

Krugman protests that what he and his Keynesian colleagues at MIT taught around 1980 was very different from Bartlett’s parody of modern Keynesianism. MIT’s Robert Solow had argued for JFK in the early 1960s that a good fiscal policy needed to pay at least as much attention to the supply side as the demand side. And certainly those teaching macroeconomics at MIT at the end of the 1970s–Stan Fischer, Rudi Dorbusch, and company–placed enormous stress on the power of monetary policy to affect aggregate demand, shape expectations, and control inflation. All this is true. And yet, and yet…

Matthew Shapiro of the University of Michigan perhaps puts it best. He went to Yale as an undergraduate in the late 1970s and to MIT as a graduate student in the early 1980s. He says (roughly, this is my memory and not verbatim):

At Yale in the 1970s, I was taught that the Chicago School was bad and wrong because they believed that monetary policy had powerful effects on production and unemployment. Then I get to MIT in the early 1980s and was taught that the Chicago School was bad adn wrong because they believed that monetary policy did not have powerful effects on production and unemployment.

The second Chicago School was made up of the rational expectations revolutionaries of the late 1970s. The first Chicago School was that of Milton Friedman’s monetarists who thought that controlling inflation was simple: don’t use open market operations to expand the money supply. They were opposed by Old Keynesians who thought that monetary restraint was ineffective, by those who thought that monetary restraint was too effective (i.e., would cause too much unemployment), and by those (like Arthur Burns) who thought monetary restraint was impossible (i.e., that the Congress would never allow the Federal Reserve to stop inflation by generating a recession the size of 1982).

My take on this story is found in J. Bradford DeLong (1997), “America’s Peacetime Inflation”; and J. Bradford DeLong (2000), “The Triumph? of Monetarism”.

The first Chicago School by and large won the day, and Paul Krugman takes their substantial victory as natural and inevitable, and it did indeed seem that way from MIT in 1980, but not from the trenches of the Joint Economic Committee where Bruce Bartlett wallowed in the political trench-warfare mud in the late 1970s. So it seems to me that Bruce is more right than Paul.

(2) I’m less sure that Bruce Bartlett was on the side of the angels on growth policy.

I was taught that one sought to have cyclical deficits in recessions, but a budget in balance or surplus on average over the business cycle, so that the mix of policy tended toward a tight fiscal-easy money configuration that would produce high investment and rapid wage, output, and productivity growth, and one paid attention to high marginal tax rates and the deadweight losses they caused. Nothing that Bruce would disagree with there. And certainly I am on Bruce’s side against those who focused exclusively on how high marginal tax rates were a good thing because they improved the distribution of income, and those who focused exclusively on fiscal policy as a manager of aggregate demand.

But in practice… it seemed to me that Bruce’s political masters like Jack Kemp were excesssively eager to throw the “budget in balance or surplus on average over the business cycle,” and that the eager embrace of deficits and their crowding-out of investment did more harm than the focus on reducing marginal tax rates did good. We can argue about that, however.

A good deal of the problem is that there were so many factions.

On the left side, there was the Solow tight fiscal-easy money tradition; the Musgrave progressive-redistributive-tax-system tradition; the vulgar Keynesians who never met a deficit or a price control they didn’t like; the New Keynesian faction to which Krugman belongs, and others.

On the right side, there were Bruce Bartlett and company; the neoconservatives who wanted rhetoric but didn’t care about getting economic policy right; those who were loyal to Reagan whatever Reagan would decide but had no clue about policy; David Stockman who hoped that cutting taxes now would produce a wave of revulsion against deficits that would enable him to cut spending later; the Buchanan-Niskanen “we are betrayed” faction that protested against the embrace of deficit spending by the Republicans; and the “starve the beast” faction. “What the supply-siders thought” depends very much on who is included in the charmed circle, and when. And the same applies to “What the Keynesians thought.”